PlayStation 4 and an Industry’s Future

By Sam Mamudi

Reuters

Excited?

Last night, to much fanfare, we saw the first details of Sony‘s (SNE) latest games console, the PlayStation 4. As noted yesterday, the future of the video game industry in large part hinges on the success of the PS4 and Microsoft‘s (MSFT) next generation system (which is expected to be unveiled in the spring or summer).

The initial reaction seems to have been one of cautious optimism.

Sony didn’t announce a launch date, retail price or, even show a glimpse of the machine itself. Instead, they talked up the graphics and the machine’s programming architecture (more on that shortly), and teased a few games.

The views of Colin Sebastian at RW Baird echoed that of many analysts:

Overall, the console looks promising. While the PS4 specs and announcement don’t yield any radical changes, we think the console design decisions look good. Unlike the beginning of the last cycle, when Sony was ascendant, Sony has since ceded valuable share to [Microsoft] XBox, but the overall gaming landscape has also changed (new competition from iOS and Android), reducing design gamble opportunities. We think all core game publishers should see positive sentiment improvements.

As Jefferies analysts Brian Pitz and Brian Fitzgerald wrote:

The real story is about new cloud,social, digital content / storefront, and other smartphone-style features…With one click, gamers will be able to instantly play games from its digital store (leveraging Gaikai’s cloud technology), as large files will automatically download in the background. Additionally, the system will enable background uploading of videos & screenshots to Facebook, live multicasting of gameplay on UStream, with real-name profiles seeded from users’ existing social networks. Overall, the PS4 will deliver a smartphone style experience where game play can be instantly stopped& saved as the user seamlessly switches between various digital media offerings from the likes of Sony (movies / music), Netflix, Amazon Instant Video, Hulu, Facebook, MLB, and the NHL.

On top of that, Sony talked up the machine’s architecture, which is much more PC-like — that could be a big boon for video game companies as it should reduce the costs and hassle of developing multiplatform games that can run on PCs, the PS4 and Microsoft’s new machine. For example, Activision Blizzard (ATVI) made an appearance last night, touting a console version of its Diablo III game — Credit Suisse analysts noted:

As we suspect that nearly all of the development costs on the PC version have already been amortized, we believe that the console port will be a fairly profitable release and does add some comfort around the achievability of 2013 guidance.

As Greg Miller, PlayStation executive editor at gaming and entertainment site IGN, told me, touting the ease with which developers can adapt future games for the PS4 — especially compared to difficulties they had with PS3 — lays a strong foundation for the new machine.

But it’s not all good news. Miller noted that while Sony announced new Killzone and Infamous games, they didn’t reveal what he called “a giant game” — a title that gamers love and could ensure they rush out to buy the PS4.

“Microsoft could beat Sony super easily and steal the conversation from them” by announcing a beloved franchise that will roll out with their new console, said Miller.

As for GameStop (GME), as Seth Sigman at Credit Suisse wrote today, there are questions about what the PS4 will mean for the retailer. The good is that the expected launch date should boost holiday 2013 sales, and the look of the games teased last night excited gamers — but then there’s the bad:

(1) the PS4 will not play old PS3 physical games, a potential negative for console adoption given consumers’ demand for backwards compatibility (see our survey results inside), and for GME’s used business. (2) Downloading functionality has improved, per Sony. (3) Streaming features will allow users to demo games before purchasing, which may raise concerns as to whether that evolves to full game streaming.

Sigman rates GameStop as an Outperform, but as with much else about yesterday’s announcement, while there are positives, a surprisingly large number of questions remain.

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